EDHECinfra

Investor interview: Mark Fawcett, CIO, NEST Corporation

June 28, 2018

Mark Fawcett is CIO of the £3 billion NEST Corporation, a major defined contribution pension scheme in the UK.

Opening the EDHECinfra Days 2018 Mark told asset managers to raise their game if they want to win business from the UK’s growing DC pensions sector. EDHECinfra’s Sarah Tame interviewed Mark on the sidelines of the event to find out about the pension funds plans for infrastructure.

What do you currently use to benchmark infrastructure investment performance?

We don’t actually have any infrastructure investments at the moment. We are looking to do that and the challenge is finding the right sort of benchmark. We’re looking for EDHECinfra to help us meet that challenge.

What would you do if you had risk-adjusted benchmarks for private infrastructure?

That’s what we will be looking for. It’s great to get good returns from infrastructure but an accurate measurement of the risk that we are taking and clearly as an illiquid asset that is harder to measure and therefore the industry needs to develop some standards for that.

Do you think the infrastructure industry needs better valuation models?

Our challenge as a DC scheme is we have to price our funds daily. We actually need two valuation models. We need a robust valuation on a regular basis, say quarterly or semi-annually, and then we need a decent proxy in-between so that members aren’t buying and selling units at a wrong price. We need to develop both sides of that.

Do you think risk is well understood in infrastructure investment today?

Not at all. I think particularly by trustees but across the industry too. Because it is an illiquid investment people think the volatility is a lot lower than it actually is. Therefore really understanding both the volatility risk but also things like the ESG risks are really important and need to be better understood.

Do you think listed infrastructure can be used as a proxy for private infrastructure, or is it fake?

I think listed infrastructure has a role in portfolios, particularly for growing schemes like ours where you can actually use it to absorb excess liquidity but it absolutely doesn’t capture the whole of the infrastructure beta for a variety of reasons so therefore direct private market infrastructure benchmarks are important and vital tool for asset owners.